Same number of bids. More wins. (Part 1 of 6)

For most of my time as a VP of Preconstruction & Sales for a specialty subcontractor, I never considered how a GC’s Agreement with the owner might change how we bid and win projects. In my mind, it didn’t matter! Build relationships, be low (or close to it) on bid day, and hope the GC isn’t a jerk. That’s what I knew. And it honestly worked well enough to win some great and profitable Contracts. But it always seemed like way too much work—a 10%-20% win rate just isn’t enough! 

Then, I learned that the GC’s agreement with the owner greatly matters. In fact, subcontractors can gain a competitive advantage by being smart about it—especially because most subcontractors are like I was: clueless! After that, while other subs were out there bidding on every job the same and treating every client the same, I started treating each project and client in a unique way, depending on their agreement with the owner. It simplified everything about the bidding, sales, and preconstruction processes. 

Over the next 6 weeks, I will give you a clear understanding of 6 common delivery methods used in the construction industry, and some really good tools to get smarter in how you approach each of them. Today is about Method #1: Public Lump Sum (Design-bid-build). 

In this series, I hope to help you subcontractors who want to increase your win rate. I also want to help general contractors understand what their subcontractors go through when pursuing a project.  

Please note that there is increasingly very little difference between the terms GC (General Contractor) and CM (Construction Manager). As a result, I use the terms interchangeably throughout the below. Let’s dive in. 

Method #1: Public Lump Sum (Design-Bid-Build) 

What it means:  

Also commonly called a “rip and read,” these bids are typically opened publicly for all bidders to witness, or, in some cases, it’s not public, but it functions the same: Multiple GCs bid and the low one gets the award. That’s all there is to it. 

Lump sum means that the project is awarded for a single total value, and whether the project costs that much or not, that’s all the owner is paying (assuming no change orders). For example, if a GC submits a $20M lump sum design-bid-build proposal, whether the project costs $13M to build or $25M to build, the owner will pay $20M. This means GCs can win by building it for less (the rest turns into profit) or lose big time by building it for more (profit turns into cost). 

How it works: 

It’s called “Design-bid-build” because the owner hires an architect to design the project, then sends “for construction” drawings to their GC base to bid on it, and finally, the awarded GC builds the project accordingly. In other words, the GCs don’t see the drawings until they’re 100% complete; the design and bid phases are totally separate. 

The GC is then expected to build the project exactly based on the plans and specs. Owners expect few change orders because it’s all in the plans. Since that’s rarely the reality, GCs often win the work in one of three ways: 1) They have an extremely competitive subcontractor base who can get low, 2) They miss something in the drawings that makes them get low, or 3) They take the job cheap but purposely hide change orders for later where they plan to pick the profit back up. Often, it’s some combination of the three, but the moral is the same: the GC (and, therefore, the subcontractors) have to be low! 

Why it’s used: 

When everything is based on the plans and specs, and you simply award the low bidder, many owners believe that they’ll get the best price. But beyond that, many owners still use it because it’s what they know. Without ever using other delivery methods, they press forward with the way things always have been done and walk away feeling confident they are avoiding getting gouged on price (although this is not always true!). 

Finally, sometimes projects are awarded this way because they have to be. Often, public monies (for example, taxes) are used to build these types of projects, so doing anything other than awarding based on a low bid could be considered collusion or misuse of public funds. So, sometimes it really is the right way, even if GCs and subcontractors may not like it. 

What you need to know: 

Whether or not you choose to pursue public projects should be a serious strategic decision. Some subcontractors thrive in the low-bid, public world and gain a competitive advantage simply because there are not many subs who play the public game the right way. So, they can sometimes surprisingly increase their hit rate on these types of projects! 

Other subs (the majority) blindly chase these projects without considering that they’re not suited for them. They want to be a value-add subcontractor, but they’re competing in a system that doesn’t reward value. Only price. 

Since you’re not winning the job based on value, you should think hard before investing relationship development resources into GCs who commonly chase public, lump-sum work. Why? You win the job based on price, not relationship. Building some relationships with these GC partners can be useful, but don’t overdo it. You only have so many hours you can devote to relationship development, and this isn’t the right place to spend them. 

One final consideration here is that you are rarely rewarded for creativity in a public lump sum. The owner wants exactly what is shown in the specs, so basing your bid on alternates or value engineering options will very likely hurt you more than help you. So, stick to the plans and specs, and install them exactly as shown. Otherwise, you’ll be paying for it out of your pocket. 

Key question to ask yourself: Do we want to compete on price, or do we want to compete on value? 

The Great Ones Have Coaches 

The owner of one of our general contractor clients once said to me (we are both huge Baltimore Ravens fans): “Lamar Jackson didn’t get a $250M Contract by going at it alone. He has coaches for almost every part of his game. That’s the same reason I wanted to hire you guys.” 

And he’s right! Hiring a coach or a consultant is something all the great athletes do to up their game, yet business owners are often hesitant to do the same! (Imagine trying to play tennis against Roger Federer without ever going to a coaching lesson) 

So, if you’re reading the above and wondering: 

• How do we become sophisticated like the top Contractors out there? 

• How do we set a strategy for the type of company we want to be? 

• How do we set a strategy for the type of work we want to chase? 

• How do we create a sales process that increases our hit rate? 

• How do we make our operations truly better and different? 

Then I hope you’ll reach out to us. Our consultants and coaches have hundreds of years of construction experience and are well-suited to help you make the changes you want. If you’re ready to talk, then email me at mverderamo@wellbuiltconsulting.com 

Good luck, and happy growing. 

Spark Notes:

• For most of my career as a VP of Preconstruction & Sales, I thought winning bids was all about relationships and being low on bid day—until I realized the GC’s agreement with the owner actually changes everything.

• Once I understood this, I stopped treating every project the same and started tailoring my approach based on the owner-GC agreement, making bidding, sales, and preconstruction much more effective.

• Over the next six weeks, I’ll break down six common construction delivery methods and give you tools to win more projects by working smarter, not just harder.

• If you want to increase your hit rate, refine your strategy, or improve your operations, my team of experienced consultants is here to help—email me at mverderamo@wellbuiltconsulting.com.